For the time being all papers issued from the II will be posted on my primary blog…Info Ink. Please stop by and enjoy.
This is from Professor’s classroom.
Iran has election….present pres. wins…protests follow….crack down follows that……bloodshed and accusations fly…..
The AP is reporting that after the mullahs warning…the protests continued.
Iran braced for the possibility of more bloody confrontations between protesters and security forces on the streets of Tehran as fresh images of brutality emerged Sunday despite the regime’s attempts to impose a news blackout.Witnesses claimed that numerous demonstrators were injured — and several allegedly killed — in clashes with black-clad police wielding guns, truncheons, tear gas and water cannons on Saturday as protests over disputed elections escalated into Iran’s most serious internal unrest since the 1979 Islamic Revolution.
Authorities did not confirm any deaths, and the reports from bloggers and Twitter users inside Iran could not immediately be verified.
All eyes are on Iran and how the election protesters are handled.
Iran is one of those countries that is mystery to most people…the only info they have is what they read or hear in the media.
Iran? Yep….the country seems to always be in the news and on the lips of American politicians….some analysts say we need to inject the US into the protests and others say we need to stay out of it…..do not give the Supreme Council any more reason to hate the US. What should we do?
Iran has made it in the news again…this time it is not about whether the holocaust happened or what to do about nukes…..it is all about the recent election and the protests that followed.
Analysts are jumping for joy over the protests they say it is a show of weakness for the mullahs and a strength of the people. Many are encouraged by the protests and say that it shows the strength of the moderates. Personally, I think that it is a bit too optimistic. Some see the popularity of Mousavi as a turning point in Iranian politics.
Unfortunately, not many people understand Iran and what is happening. For this reason too much misinformation is out there and people are playing to that erroneous information.
In the next parts of this post I will explain, as best I can, why I feel that this is not as good of news as most seem to think it is.
As written by Walden Bello:
This is the final installment on the analysis of the economic crisis we are now facing.
Collapse of the Real Economy
But instead of performing their primordial task of lending to facilitate productive activity, the banks are holding on to their cash or buying up rivals to strengthen their financial base. Not surprisingly, with global capitalism’s circulatory system seizing up, it was only a matter of time before the real economy would contract, as it has with frightening speed in the last few weeks. Woolworth, a retail icon, has folded in Britain, the US auto industry is on emergency care, and even mighty Toyota has suffered an unprecedented decline in its profits. With American consumer demand plummeting, China and East Asia have seen their goods rotting on the docks, bringing about a sharp contraction of their economies and massive layoffs.
Globalization has ensured that economies that went up together in the boom would also go down together, with unparalleled speed, in the bust, the end of which is nowhere to be discerned.
Continuing from the article by Walden Bello:
Dynamics of the Subprime Implosion
The current Wall Street collapse has its roots in the Technology Bubble of the late 1990s, when the price of the stocks of Internet startups skyrocketed, then collapsed, resulting in the loss of $7 trillion worth of assets and the recession of 2001-2002.
The loose money policies of the Fed under Alan Greenspan had encouraged the Technology Bubble, and when it collapsed into a recession, Greenspan, trying to counter a long recession, cut the prime rate to a 45-year low of 1.0 percent in June 2003 and kept it there for over a year. This had the effect of encouraging another bubble – the real estate bubble.
As early as 2002, progressive economists were warning about the real estate bubble. However, as late as 2005, then Council of Economic Advisers Chairman and now Federal Reserve Board Chairman Ben Bernanke attributed the rise in US housing prices to “strong economic fundamentals” instead of speculative activity. Is it any wonder that he was caught completely off guard when the Subprime Crisis broke in the summer of 2007?
The subprime mortgage crisis was not a case of supply outrunning real demand. The “demand” was largely fabricated by speculative mania on the part of developers and financiers that wanted to make great profits from their access to foreign money – most of it Asian and Chinese in origin – that flooded the US in the last decade. Big ticket mortgages were aggressively sold to millions who could not normally afford them by offering low “teaser” interest rates that would later be readjusted to jack up payments from the new homeowners.
How did problematic mortgages become such a massive problem? The reason is that these assets were then “securitized” – that is converted into spectral commodities called “collateralized debt obligations” (CDOs) that enabled speculation on the odds that the mortgage would not be paid. These were then traded by the mortgage originators working with different layers of middlemen who understated risk so as to offload them as quickly as possible to other banks and institutional investors. These institutions in turn offloaded these securities onto other banks and foreign financial institutions.
The idea was to make a sale quickly, get your money upfront and make a tidy profit, while foisting the risk on the suckers down the line – the hundreds of thousands of institutions and individual investors that bought the mortgage-tied securities. This was called “spreading the risk,” and it was actually seen as a good thing because it lightened the balance sheet of financial institutions, enabling them to engage in other lending activities.
When the interest rates were raised on the subprime loans, adjustable mortgage, and other housing loans, the game was up. There are about four million subprime mortgages which will likely go into default in the next two years, and five million more defaults from adjustable rate mortgages and other “flexible loans” that were geared to snag the most reluctant potential homebuyer will occur over the next several years. But securities whose value run into as much as$2 trillion had already been injected, like virus, into the global financial system. Global capitalism’s gigantic circulatory system was fatally infected. And, as with a plague, we don’t know who and how many are fatally infected until they keel over because the whole financial system has become so non-transparent owing to lack of regulation.
For Lehman Brothers, Merrill Lynch, Fannie Mae, Freddie Mac, Bear Stearns, Bank of America, and Citigroup, the losses represented by these toxic securities simply overwhelmed their reserves. Iceland’s banks and many European financial institutions have since joined the list of victims. Some, like Lehman Brothers, have been allowed to die, but most have been kept alive with massive injections of taxpayers’ cash by governments that want the banks to lend to keep the real economy going.
Part 6–Collapse Of The Real Economy
Continuing from Walden Bello:
Financialization
Given the limited gains in countering the depressive impact of overproduction via neoliberal restructuring and globalization, the third escape route – financialization – became very critical for maintaining and raising profitability.
With investment in industry and agriculture yielding low profits owing to overcapacity, large amounts of surplus funds have been circulating in or invested and reinvested in the financial sector – that is, the financial sector is turning on itself.
The result is an increased bifurcation between a hyperactive financial economy and a stagnant real economy. As one financial executive noted in the pages of the Financial Times, “there has been an increasing disconnect between the real and financial economies in the last few years. The real economy has grown … but nothing like that of the financial economy – until it imploded.” What this observer does not tell us is that the disconnect between the real and the financial economy is not accidental – that the financial economy exploded precisely to make up for the stagnation owing to overproduction of the real economy
One indicator of the super-profitability of the financial sector is that while profits in the US manufacturing sector came to one percent of US gross domestic product (GDP), profits in the financial sector came to two percent. Another is the fact that 40 percent of the total profits of US financial and non-financial corporations is accounted for by the financial sector although it is responsible for only fiv percent of US gross domestic product (and even that is likely to be an overestimate).
The problem with investing in financial sector operations is that it is tantamount to squeezing value out of already created value. It may create profit, yes, but it does not create new value – only industry, agricultural, trade, and services create new value. Because profit is not based on value that is created, investment operations become very volatile and prices of stocks, bonds, and other forms of investment can depart very radically from their real value – for instance, the stock of Internet startups may keep rising to heights unknown, driven mainly by upwardly spiraling financial valuations.
Profits then depend on taking advantage of upward price departures from the value of commodities, then selling before reality enforces a “correction,” that is a crash back to real values. The radical rise of prices of an asset far beyond real values is what is called the formation of a bubble.
Profitability being dependent on speculative coups, it is not surprising that the finance sector lurches from one bubble to another, or from one speculative mania to another.
Because it is driven by speculative mania, finance driven capitalism has experienced about 100 financial crises since capital markets were deregulated and liberalized in the 1980s, the most serious before the current crisis being the Asian Financial Crisis of 1997.
Part 5–Subprime Implosion
Continuing from Walden Bello:
Globalization
The second escape route global capital took to counter stagnation was “extensive accumulation” or globalization, or the rapid integration of semi-capitalist, non-capitalist, or pre-capitalist areas into the global market economy. Rosa Luxemburg, the famous German radical economist, saw this long ago in her classic “The Accumulation of Capital” as necessary to shore up the rate of profit in the metropolitan economies.
How? By gaining access to cheap labor, by gaining new, albeit limited, markets, by gaining new sources of cheap agricultural and raw material products, and by bringing into being new areas for investment in infrastructure. Integration is accomplished via trade liberalization, removing barriers to the mobility of global capital, and abolishing barriers to foreign investment.
China is, of course, the most prominent case of a non-capitalist area to be integrated into the global capitalist economy over the last 25 years.
By the middle of the first decade of the 21st century, roughly 40-50 percent of the profits of US corporations came from their operations and sales abroad, especially in China.
The problem with this escape route from stagnation is that it exacerbates the problem of overproduction because it adds to productive capacity. A tremendous amount of manufacturing capacity has been added in China over the last 25 years, and this has had a depressing effect on prices and profits. Not surprisingly, by around 1997, the profits of US corporations stopped growing. According to one calculation, the profit rate of the Fortune 500 went from 7.15 in 1960-69 to 5.30 in 1980-90 to 2.29 in 1990-99 to 1.32 in 2000-2002. By the end of the 1990s, with excess capacity in almost every industry, the gap between productive capacity and sales was the largest since the Great Depression.
Coming Part 4–Financialization
Continuing from Walden Bello:
Neoliberal Restructuring
Neoliberal restructuring took the form of Reaganism and Thatcherism in the North and Structural Adjustment in the South. The aim was to invigorate capital accumulation, and this was to be done by 1) removing state constraints on the growth, use, and flow of capital and wealth; and 2) redistributing income from the poor and middle classes to the rich on the theory that the rich would then be motivated to invest and reignite economic growth.
The problem with this formula was that in redistributing income to the rich, you were gutting the incomes of the poor and middle classes, thus restricting demand, while not necessarily inducing the rich to invest more in production. In fact, it could be more profitable to invest in speculation.
In fact, neoliberal restructuring, which was generalized in the North and south during the eighties and nineties, had a poor record in terms of growth: Global growth averaged 1.1 percent in the 1990s and 1.4 percent in the ‘80s, compared with 3.5 percent in the 1960s and 2.4 percent in the ‘70s, when state interventionist policies were dominant. Neoliberal restructuring could not shake off stagnation.
Coming up in Part 3–Globalization
Day after day the news from around the world gets worse and worse and these parts are from a piece written by Walden Bello that help to explain why the collpase is happening.
The fundamental crisis: overaccumulation
Orthodox economics has long ceased to be of any help in understanding the crisis. Non-orthodox economics, on the other hand, provides extraordinarily powerful insights into the causes and dynamics of the current crisis. From the progressive perspective, what we are seeing is the intensification of one of the central crises or “contradictions” of global capitalism: the crisis of overproduction, also known as overaccumulation or overcapacity. This is the tendency for capitalism to build up, in the context of heightened inter-capitalist competition, tremendous productive capacity that outruns the population’s capacity to consume owing to income inequalities that limit popular purchasing power. The result is an erosion of profitability, leading to an economic downspin.
To understand the current collapse, we must go back in time to the so-called Golden Age of Contemporary Capitalism, the period from 1945 to 1975. This was a period of rapid growth both in the center economies and in the underdeveloped economies – one that was partly triggered by the massive reconstruction of Europe and East Asia after the devastation of the Second World War, and partly by the new socioeconomic arrangements and instruments based on a historic class compromise between Capital and Labor that were institutionalized under the new Keynesian state
But this period of high growth came to an end in the mid-1970s, when the center economies were seized by stagflation, meaning the coexistence of low growth with high inflation, which was not supposed to happen under neoclassical economics.
Stagflation, however, was but a symptom of a deeper cause: the reconstruction of Germany and Japan and the rapid growth of industrializing economies like Brazil, Taiwan, and South Korea added tremendous new productive capacity and increased global competition, while income inequality within countries and between countries limited the growth of purchasing power and demand, thus eroding profitability. This was aggravated by the massive oil price rises of the seventies.
The most painful expression of the crisis of overproduction was global recession of the early 1980s, which was the most serious to overtake the international economy since the Great Depression, that is, before the current crisis.
Capitalism tried three escape routes from the conundrum of overproduction: neoliberal restructuring, globalization, and financialization.
Part 2–Neoliberal Restructuring
This election cycle there is a lot said and a lot used about free trade and globalization in the campaigns. The region known as the Rust Belt is the area hit the hardest by free trade agreements. This area includes Pennsylvania, Ohio, and any place that has lost manufacturing jobs because of agreements like NAFTA. Each of the candidates has their own little world which they preach from on the benefits of globalization and free trade. The truth is more disastrous that any of them want to admit. And actually, some of them go as far to make each of their proposals sound like the answer to the economic woes of the people.
The Democratic Leadership Council’s economist, Rose has said, “The growth in trade and technology over the past three decades has generated meaningful employment growth for the middle class. As a general rule, middle-class jobs are not disappearing.” Unfortunately not everyone agrees with this analysis. A report by the Economic Policy Institute found the following:
• In 2006, the impact of trade flows increased the inequality of earnings by roughly 7%, with the resulting loss to a representative household (two earners making the median wage and working the average amount of (household) hours each year) reaching more than $2,000. This amount rivals the entire annual federal income tax bill paid by this household.
• Over the next 10-20 years, if some prominent forecasts of the reach of service-sector offshoring hold true, and, if current patterns of trade roughly characterize this offshoring, then globalization could essentially erase all wage gains made since 1979 by workers without a four-year college degree.
An important caveat, however, notes that even as globalization raises national income, it can still reduce the incomes of most workers. Global integration has at least two potential impacts on American wages. First, workers employed in industries directly in competition with low-cost imports from abroad can expect to see immediate job dislocation and/or downward wage pressures. Second, as relative prices change across industries, the return to factors of production, including different kinds of labor inputs, can be expected to change as well.
As the campaigns for the presidency move on, we are constantly bombarded with the benefits of the world economy, in this case globalization. But as with anything when politics is involved facts and figures are used to influence and inspire voters. But there is a basic axiom of economic theory is all too often ignored, or, even actively hidden. For example, Bradford, Greico, and Hufbauer (2005), in what they bill as a comprehensive accounting of the gains and losses attributable to trade liberalization, count only the costs of direct displacement by imports as a debit in the balance sheet of globalization, and do not even acknowledge the possibility of permanent wage losses through a broader labor market. Failing to count the largest cost of globalization is, of course, an excellent way to make the cost/benefit analysis of integration come out well to those favoring the status quo.
If one has a finger in speculation then globalization is a profitable endeavor. But if one is a worker then globalization spells only one thing—unemployment and/or low wages.
I realize that this post will most likely draw a bit of attention….so be it….this is from an article written by Joe Sims and it appeared in Political Affairs magazine. This is a bit lengthy but it is worth the time to read.
As it turned out, a disproportionate number of the people they “fucked” were African American and Latino families. Perhaps this explains at least in part why no Wall Street insiders had qualms about their activities or why in recent weeks the issue seems to have almost disappeared from discourse on the economic recession. Attention to this highly important issue was given in 2008 when the Urban League, the NAACP and the Congressional Black Caucus made it the centerpiece of their annual conferences. As the fall election campaign swung into high gear, however, save for oblique references by the Republican candidate, John McCain, concerning the “mismanagement” of Fannie Mae and Freddie Mac and more caustic comments by demagogues like Ann Coulter blaming Black and Latino families for the meltdown, the electoral discourse at the height of crisis largely stayed away from what may have been conceived as a racially charged issue.
Still, as the main civil rights organizations charged in the summer of 2008, the racist origins of the subprime mess are difficult to ignore. A cursory glance at some of the statistical highlights provides ample evidence. An excellent study authored by United For a Fair Economy entitled “Foreclosed” suggests several indicators, chief among them the disproportionate numbers of people of color holding subprime loans: over 50 percent of all mortgages held by African Americans fall into this category. The figure is 40 percent for Latinos.
These percentages have grave economic implications: “Given that people of color are a disproportionate number of the subprime borrowers, and that this group’s assets are mostly concentrated in homeownership, the current foreclosure crisis can be considered the greatest loss of wealth for communities and individuals of color in modern US history.” Black and Latinos will lose between $164 and $213 billion for loans taken during the past eight years.
The disproportionate numbers of Blacks and Latinos with subprime loans, while suggestive serves as only partial explanation. The central question is what caused it? Were the higher relative percentages merely the casual result of ongoing poverty or was a more causal underlying factor at play? Bush administration policy provides important clues.
Subprime loans were allegedly established and encouraged as part of government and corporate efforts to provide support for struggling working-class families troubled with bad credit histories. Truth be told, former President Bush himself pushed the program, believing it would create “stakeholders” in an “Ownership Society” and expand meager Blacks and Latino support for the Republican Party. In the view of the New York Times, the Bush “pushed hard to expand homeownership, especially among minorities, an initiative that dovetailed with his ambition to expand the Republican tent – and with the business interests of some of his biggest donors.”
Good intentions, however, was not point. At stake were big business interests. A strong case can be made that banks deliberately connived to target minority buyers in order to push profit margins, knowing full well (from their own risk assessment calculations) that the loans could not be repaid. Not only were the banks betting on the defaults, but, in fact, were pressuring prospective Black and Latino borrowers to take out such loans, leading the unwitting customers like so many sheep to a financial slaughter house.
Homeownership, as it turns out, was not the major objective of the lenders. Despite rhetoric promoting an ownership society, only a fraction of loans were awarded to first-time homebuyers. And pubic officials were well aware of this even before the financial meltdown became full blown.
Based on the Journal’s analysis of borrowers’ credit scores, 55 percent of subprime borrowers had credit scores worthy of a prime, conventional mortgage in 2005. By the end of last year, that percentage rose to over 61 percent according to their study. While some will have damaged their credit in the interim, it’s clear that many subprime borrowers have the financial foundation for sustainable homeownership, but may have been tricked into unaffordable loans by unscrupulous brokers.
Thus, working-class Black and Latino families, over half if not 60 percent of whom were eligible for conventional loans, burdened by several years of stagnant and falling wages during a jobless recovery were led by mortgage companies in clear and blatant cases of predatory racially inspired lending.
The racial overtones are evident in this swindle are evident. But what made the loans predatory? The United For a Fair Economy study provides the following criteria: One factor is their marketing and sales to inappropriate customers. Another is pre-payment penalties. Seventy percent of subprime loans had such penalties. A third element was Adjustable Rate Mortgages (ARMS), which often carried unexplained ballooning interest rates that increase payments by as much as one-third. A majority of subprimes were ARMS. Yet another condition was the exclusion of tax and insurance costs when estimating the monthly payment for a potential home-buyer. And finally the encouragement of ordinary borrowers to take interest-only loans, where in the initial year or two only the interest is paid on, after which the principal rates kick in raising the cost dramatically.
The Bush administration was not only complicit in these practices, but may have helped mastermind them. “The president also leaned on mortgage brokers and lenders to devise their own innovations,” according to the New York Times. “And corporate America, eyeing a lucrative market, delivered in ways Mr. Bush might not have expected, with a proliferation of too-good-to-be-true teaser rates and interest-only loans that were sold to investors in a loosely regulated environment.”
